Loan Against Fixed Deposit

IndianMoney.com Research Team | Wednesday, July 01,2015, 05:18 PM

You need money badly. Expenses are rising and you feel you can solve your financial difficulties by availing a personal loan.

The reason:You don’t need to give a reason why you need to avail a personal loan. You can use the money as you wish.

Problem: Personal loans charge you a high rate of interest. This is because they are unsecured loans (There is no collateral for a personal loan).

This in when you see light at the end of the tunnel. You remember the fixed deposit you made at the bank.You make enquiries if you can avail a loan against the fixed deposit and you get a positive response.

Should you take a loan against your fixed deposit?

If you avail a loan against your fixed deposit your loan is a secured loan (Collateral is the fixed deposit).

You can avail a loan against your fixed deposit to the extent of 80-90% of its value.

The amount of loan you can avail against your fixed deposit depends on the bank you avail the loan from, as well as the quantity (size) of the fixed deposit.

If your fixed deposit is over INR 40-50 Lakhs then the bank might give you a loan up to 90-95% of the value of your fixed deposit.

What about the tenure of the loan against FD?

The tenure of the loan (Time period you borrow the money) depends on the maturity of the fixed deposit.

Your time to repay the loan cannot exceed the maturity term (time of maturity) of the fixed deposit.

Most of the banks adjust the time to repay your loan in line with the maturity of the fixed deposit.

You can pay back your loan in EMI’s or just pay back the interest on the loans ,but the loan needs to be repaid within the maturity time of the fixed deposit.

If the amount you borrow + the interest on the loan exceeds the value of your fixed deposit then the bank asks you to pay off a part of the loan so that the balance is restored.

The major benefit you get:

​A lower rate of interest on the loan you avail.

You don’t need to liquidate your fixed deposit.(You only pledge the FD).

For what time period can you avail a loan against your fixed deposit?

The maximum tenure of a fixed deposit is 10 years. You have to adjust your loan repayments within this time period.

This means you can only borrow (avail a loan against your fixed deposit) for a very short period of time.

This means a short term borrowing of 2-3 years. You must repay your loan before the maturity of your fixed deposit.

This is because the average time period you would make a fixed deposit with a bank is 2-3 years.

You have learnt how a fixed deposit is not only a safe and secure deposit but also helps you in your time of crisis.You can avail a loan against your fixed deposit and get a good bargain.

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IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.